Last week, several business groups including the National Federation of Independent Businesses filed a lawsuit seeking to invalidate one of the Department of Labor’s top priorities: a final rule issued in April that updates the Fair Labor Standards Act’s (FLSA) overtime salary thresholds to ensure that millions more workers are eligible for extra pay if they work more than forty hours per week. 

The rule includes what you might think of as an unremarkable technicality: it automatically indexes the threshold to inflation. Not so, claim the powerful industry groups. The lawsuit alleges that the inflation adjuster “exceeds any authority granted to the Department by Congress.” Others made similar claims during the rulemaking process, including the U.S. Chamber of Commerce. Our research suggests otherwise.  

First, some background. An automatic inflation adjustment was first put forward as part of the Department’s attempt to update the FLSA overtime thresholds in 2016; however, that rule never went into effect. In a rather unconvincing opinion, a federal district court in Texas enjoined the rule’s implementation late in the Obama administration—with scant consideration of the automatic adjustment provision. (Unsurprisingly, the industry groups chose to file their lawsuit in the same district this time around). But by the time it came to appeal, the White House had flipped. Rather than zealously defend the 2016 rule, Trump’s appointees at the Department decided to replace it with a watered-down version that did not incorporate an inflation mechanism.  

In this lawsuit, the industry groups note that, “Congress has provided for automatic indexing in numerous other statutes, such as the cost of living increases for Social Security benefits.” The implication is that the FLSA’s silence on the issue — it’s true that the overtime provisions do not reference inflation one way or another — therefore weighs against the validity of any auto-adjustment mechanism. Yet judicial precedent and administrative practice tell a different story. 

In a 1983 case called Amusement & Music Operators Ass’n v. Copyright Royalty Tribunal, the 7th Circuit upheld a rule from the Copyright Royalty Tribunal that automatically indexed jukebox operator royalty fees based on statutory language that did not specifically reference inflation. (The statute directed the Tribunal to “make determinations and adjustments of reasonable terms and rates of royalty payments.”) 

We also surveyed other examples of automatic inflation adjusters outside of the FLSA context. With just a few hours of research, we uncovered a number of rules that, like the Overtime rule, incorporate automatic adjustment mechanisms without express statutory language concerning inflation. The rules address everything from federal student loan eligibility requirements to the definition of “small business” in the context of Consumer Financial Protection Bureau reporting requirements to penalties airlines owe consumers for wrongfully denying boarding. (No doubt a more exhaustive survey would turn up several other examples.) Naturally, sometimes these indexing provisions tend to benefit the regulated entities: an early ACA regulation, for example, allowed pre-existing health plans to annually increase cost-sharing in line with inflation while still maintaining their grandfathered status. Inflation adjusters — including those implemented without specific statutory language concerning the subject — appear to be a bread-and-butter tool of modern economic regulation. 

That makes sense. After all, a dollar figure simply represents economic value at a particular moment in time. As all Americans have experienced in recent years, the purchasing power of the dollar can shift dramatically with inflation. So even a so-called “static” salary threshold expressed in non-indexed dollar terms is actually constantly changing as a matter of economic value. The difference, then, between incorporating or leaving out an indexing mechanism is not a choice between changing or not changing the economic value of the overtime threshold; that would happen in either scenario. Rather, what’s at stake is a much narrower question: will the inevitable (and marginal) change in economic value tend to accrue to the benefit of workers or employers? (Although it’s worth noting, by the way, that in a period of deflation, the rule’s indexing mechanism would actually benefit employers). Surely absent a specific statutory prohibition, that is the kind of technical determination that even most Chevron skeptics can agree is plausibly left to expert agencies (and, of course, freely reversible by subsequent administrations).  

Amid today’s turbulent administrative law climate, it is difficult to know anything with certainty. While the Department’s rule strikes us as legally sound, we do not take its fate for granted, especially in the Eastern District of Texas. Yet on at least one point we are confident: to invalidate the overtime regulation’s inflation adjustment provision would be to rule against decades of past agency practice — and risk upending what is likely dozens of regulatory schemes across a range of issues.  

Will Dobbs-Allsopp is the Policy Director at Governing for Impact. Reed Shaw is a Policy Counsel at Governing for Impact.